Question

Economic Life 13-1 An injection-molding machine has a first cost of $1,050,000 and a salvage value of $225,000 in any year. The maintenance and operating cost is $235,000 with an annual gradient of $75,000. The MARR is 10%. What is the most economic life?

please use Excel sheet template to solve the problem

Answer 1

first Cost= $1,050,000

Salvage Value= $225,000

Maintenance & Operating Cost= $235,000

Maintenance & Operating Gradient= $75,000

MARR= 10%

EUAB – EAUC = $1,050,000 (A/P, 10%, n) + $225,000 (A/F, 10%, n) - $235,000 - $75,000 (A/G, 10%, n)

a) n = 4 years:

EUAB – EAUC

= $331,275 + $48,488 - $235,000 - $103,575

= -$621,362

b) n = 5 years:

EUAB – EUAC

= -$276,990 + $36,855 - $235,000 - $135,750

= -$610,885

c) n = 6 years:

EUAB – EUAC

= -$241,080 + $29,160 - $235,000 - $166,800

= -$613,720

Thus, year 5 has the minimum EUAB – EUAC, hence the most economic life is 5 years